Can 'temporary' tax hikes bail out California?

California Gov.-elect Jerry Brown talks to reporters following a public discussion of the state budget on the campus of UCLA Tuesday, Dec. 14, 2010. AP PHOTO

Michael Gardner is a Sacramento correspondent for the San Diego Union Tribune. This story is part of the California Budget Project, a partnership of the Union Tribune, The Orange County Register, and the California Health Report, online at healthycal.org. To see more stories about California and its economic problems go to ocregister.com/CaProject.

Which taxes are at stake?

Sales tax: The state share was increased 1 percent, to 6 percent. It would raise $4.5 billion in 2011-12.

Income tax: There is a 0.25 surcharge. It would raise $2.07 billion in 2011-12.

Vehicle license fees: An increase of 0.65 percent to a 1.15 percent rate based on vehicle value. It would raise $1.38 billion in 2011-12.

Dependent exemption: A $99 credit, down from the $309 allowed two years ago. It would raise $1.25 billion in 2011-12.

SACRAMENTO – For the past two years Californians have paid more on April 15, at the cash register and to the DMV. How much more? About $260 each per year, or more than $1,000 for the average family of four.

These increases in the income, sales and car taxes were sold as temporary pain that would be relieved once California's economic engine restarted and the state's monstrous budget deficit was tamed.

But neither has happened.

The economy remains sluggish and the budget gap stands at $26.6 billion over the next 15 months. The state's general fund is estimated to be about $85 billion next year.

So Gov. Jerry Brown is pushing lawmakers to ask voters to extend the taxes for another five years, with most going to selected programs.

Sound familiar? Then-Gov. Arnold Schwarzenegger and lawmakers submitted a similar plea in a special election in May 2009. Voters said no by 66 percent to 34 percent. In Orange County, Proposition 1A lost 74 percent to 26 percent in Orange County.

Brown insists times have changed enough to warrant a new "check-in with the people of California." But so far Republicans have balked at providing enough votes to secure the desired two-thirds majority to place the issue on a June ballot. Negotiations have been running hot and cold for weeks.

A Field Poll released this week showed that 61 percent of voters, including 56 percent of Republicans, want the state to have a special election on the budget. Fifty-eight percent of voters say they would favor extending the temporary taxes.

Pocketbooks as well as principles are on the line.

For example, those with a $20,000 car have paid an extra $125 annually in vehicle license fees. A $500 iPad rings up $5 higher because of a 1 percent sales tax boost. And come April 15, a California family with one child and a gross taxable income of $60,000 in 2010 will send the state $340 more because of higher income taxes and a smaller exemption for dependents.

Those extra taxes would bring in an estimated $9.25 billion, or more than 10 percent of the entire general fund, in 2011-2012, according to the state Department of Finance. The income tax extension and lower dependent care exemption would bring in about $1.9 billion for the current fiscal year, making the total tax package worth $11 billion.

Brown earmarks some of the money to guard against complaints that the new revenues would just fall into the Capitol's black hole. Brown proposes to set aside the increases in sales and car taxes for local governments as part of his plans to shift some state public safety responsibilities, such as parole services, to counties, although this shift won't save the taxpayers any real money. He would dedicate 6.5 percent of all net personal income tax receipts to K-12 schools and community colleges.

Brown and others have warned of even deeper cuts if the extensions are not granted.

Regardless of the tax increases, Brown is proposing to reduce grants for poor families, seniors and the disabled, reduce health benefits while charging higher premiums and co-payments to low-income people, impose deep cuts in university budgets, and roll back subsidized day care for children and the elderly.

The nonpartisan Legislative Analyst, responding to a senator's request, conducted a broad-brush look at how the state could slash the deficit without new taxes beyond Brown's already proposed $12.5 billion in cuts.

The analyst did not take sides. Rather, he outlined a list of possibilities that sweeps in schools, prisons, social services, environmental protection and general government. Combined the potential savings would approach $13.5 billion.

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